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The Seven Percent Solution? An International Perspective On Underwriting Spreads

  • Ljungqvist, Alexander P.
  • Wilhelm Jr, William J

Non-US firms frequently pay a substantial premium to have a US bank lead their initial public offering of equity, even when the issuing firm is not seeking a listing on a US exchange. We provide evidence that this decision reflects an expectation that US banks deliver a higher quality bundle of underwriting services. Specifically, a non-US issuing firm that includes a US bank in its underwriting syndicate can expect to have its offering underpriced by 17.7% less than had it not included a US bank in the syndicate. Failure to account for the endogeneity of the decision to hire a US bank vastly understates the magnitude of the effect. This finding has direct implications for the claim that US bank spreads for domestic IPOs are above competitive levels.

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Paper provided by C.E.P.R. Discussion Papers in its series CEPR Discussion Papers with number 2736.

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Date of creation: Mar 2001
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Handle: RePEc:cpr:ceprdp:2736
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